SYDNEY

Global Market Perspective 2010: Prelude to Recovery

Jones Lang LaSalle’s final Global Market Perspective for the year provides a ‘Regional Recovery Roadmap for 2010’

SYDNEY, 20 NOVEMBER 2009 – Jones Lang LaSalle’s latest Global Market Perspective for November predicts how the commercial property recovery will unfold over 2010 in terms of transaction volumes, capital values and the occupier market.

Australian Head of Capital Markets, John Talbot said in some markets, transaction volumes were starting to rebuild and there was even some growth in capital values in markets such as London, Hong Kong and Shanghai.

Mr Talbot said Australian commercial property was still well placed to perform relatively strongly during the recovery phase in 2010.

“The momentum from the global economic recovery is beginning to impact on tenant demand, with net demand for Australian CBD office space rising by around 105,000 sqm in the September quarter.

“While supply issues remain for some markets, such as Brisbane and Perth, the positive demand is a solid indicator for the relative strength of Australian commercial property

“Jones Lang LaSalle expects most Australian CBD office markets to stabilise in the first half of 2010, with positive capital value growth while effective rental growth should turn positive in the second half of 2010,” Mr Talbot said.

Director of Global Capital Markets Research for Jones Lang LaSalle, John Sears said the global economic recovery was starting to impact on capital values, with evidence of a rebound in some markets such as London, Hong Kong and Shanghai.

“As a result of the Global Financial Crisis, capital values across the world fell up to 75%, well beyond what the fundamentals justified. This is driving a trading bounce as investors can see economic recovery. However, a significant retracement , 20% to 30%, is unlikely in the short term due to the potential for further rent declines and also because, in some markets, the previous peak represented overinflated values,” Mr Sears said.

Mr Talbot said, “A 10% trading bounce in capital values in the most oversold global markets could see yields decline by up to 75 bps in 2010. This will initially be in core markets but spread as investors look further afield for the best value.

“As Australian capital values did not decline as much, Jones Lang LaSalle is looking for more modest increase in capital values of 1% to 2% in 2010.

“It appears the trend is now upwards – investors will need to start thinking about how best to capture this upside and position themselves in the recovery,” Mr Talbot said.

The Global Market Perspective report analysis reveals that commercial mortgage-backed securities (CMBS), which are seen as the next crisis brewing, may not be as severe as originally thought.

“The report makes the case to put the US CMBS issues in perspective,” said John Sears.

“Jones Lang LaSalle analysis found that if US CMBS delinquencies rose to 5% from 3.7%, over the next three years the additional stock placed on the market for sale would relatively small, equivalent to 2% to 3% of 2008 US transaction volumes. Significant, but not the huge wave of forced sales some have been anticipating.

“A potentially bigger problem for the US banking sector is the disproportionately high exposure of small and medium sized banks to construction and land development loans, an area of high risk, with exposure of around 27% compared to just 5% to 6% for the large banks,” Mr Sears said.

The report also states that in Europe, the actions of banks in pushing back maturing dates and covenants being amended to overcome short-term loan to value issues is helping to avoid wide-scale disposals. This is resulting in the expected opportunities for so-called ‘vulture funds’ to not be forthcoming.